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Deluxe corporation

Deluxe corporation. By Thomas Hsieh ; Eric Peng ; Wendy Tseng Xiuhui Chong ; Che -Yi Chiang ; Alex Chen. Overview. Reorganization Divested non strategic businesses Reduced employees and facilities Earnings reverse. Market Demand Decline: 1%-3%. Overview. Financing source.

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Deluxe corporation

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  1. Deluxe corporation

    By Thomas Hsieh ; Eric Peng ; Wendy Tseng Xiuhui Chong ; Che-Yi Chiang ; Alex Chen
  2. Overview Reorganization Divested non strategic businesses Reduced employees and facilities Earnings reverse Market Demand Decline: 1%-3%
  3. Overview
  4. Financing source
  5. Corporate Goal
  6. Financial Analysis
  7. The importance of bond rating Bond ratings first of all provide a corporate image/brand name to company. Bond ratings are an index in order for investors to distinguish between the valuable and junk bonds, hence providing them important information to buy them or not. Bond rating index is a measure of the company’s ability of meeting its liabilities.
  8. Key industrial ratios
  9. Key industrial ratios Rating of the company: AA
  10. By Computing WACC Try some other way to figure out the most suitable answer. WACC=Kd*𝐷/(𝐷+𝐸)*(1-T)+Ke*E/(𝐷+𝐸)
  11. We had known……. In 2001 EBIT=302 million Tax rate = 131/344.8= 0.38 Market/Book ratio=33.91
  12. Step1. Use book value as equity to calculate WACC
  13. But…we find more reasonable in using market value than book value market value reflects the firm value much precisely.
  14. Step2. multiply book value by market/book ratio (33.91 at 2001)
  15. Choose A or BBB? Investment-grade rating Do not pay much of a penalty in yield as going from A to BBB AAA AA A BBB Noninvestment-grade rating costs a lot when going from BBB to B higher capital cost and possible damage to Deluxe brand. BBB BB B
  16. Decision We decide to use A bonds rating as our final answer. Deluxe may not be as profitable as before due to the declining demand for printed checks. we choose A at least we still held the position in investment-grade rating when downgrading from A to BBB
  17. Calculating the range of debt Upper limit of debt ∴UpperDebt equals $841million
  18. Calculating the range of debt Lower limit of debt Singh once said “But let's suppose that a two-sigma adverse outcome would be an EBIT close to $200 million－I can’t image in the worse of times an EBIT less than that.” ∴Lower Debt equals $557 million
  19. Conclusion The interval of the debt：$557-$841 million On any point of which, Singh’s choice simultaneously satisfy the need to issue debt and the avoidance of risk of degrading bonds rating.
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